Metro Bank is exploring a £2bn merger with Aldermore, the British challenger bank which is up for sale after becoming embroiled in the motor finance mis-selling scandal.
Sky News has learnt that Metro Bank is at the early stages of examining whether to make a formal offer for Aldermore, which specialises in mortgages and business lending.
City sources said on Tuesday that the high street lender was among a number of parties actively evaluating an offer, although it was not yet certain to submit one.
Aldermore's owner - the South African lender FirstRand - announced in April that it was putting the business up for sale, having calculated that the car finance affair would cost it around £750m in compensation payouts.
FirstRand bought Aldermore in 2017 for £1.1bn.
Lloyds Banking Group, the UK's biggest retail bank, is also among the parties engaged in the sale process, Sky News has previously reported.
Shawbrook Group and a number of other major UK banks might also make offers.
Metro Bank's decision to explore an offer for Aldermore underlines the extent of its recovery from the crisis in 2023 which almost saw it collapse.
The company was rescued by a £325m fundraising led by Jaime Gilinski, a Colombian billionaire who now owns just over 50% of the bank.
Reports last year suggested he would be open to the sale of his stake.
Metro Bank has a market valuation of about £1.1bn, having seen its shares rise by about a third over the last year.
Daniel Frumkin, Metro Bank's chief executive, has won credit from investors for refocusing it on more profitable lending and cutting costs.
One challenge for Metro would be the consideration for any Aldermore offer.
It could seek to raise fresh equity or finance it partly in stock, although FirstRand is not thought to be keen to strike a paper-based deal.
Banking sources believe any buyer of Aldermore will need an indemnity against further compensation liabilities.
The Financial Conduct Authority's £9.1bn redress scheme has been thrown into chaos by a number of legal challenges, including from the finance arm of BMW and Volkswagen.
Nikhil Rathi, the regulator's boss, has criticised the programme's opponents and claims management firms over their actions.
Metro Bank declined to comment.
(c) Sky News 2026: Metro Bank eyes £2bn merger with rival challenger bank Aldermore
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